Youth Unemployment Could 'Scar' an Entire Generation: ILO

The underemployed: More than 17 percent of the U.S. employed are part of the part-time economy.

The long-term impact of rising unemployment among the young could be felt for decades, according to the International Labor Organization (ILO), which estimates that 73.4 million young people or 12.6 percent of young people aged between 15 and 24 around the world are expected to be out of work in 2013, a jump of 3.5 million between 2007 and 2013.

In its latest report, the ILO said there had been a deterioration of employment prospects in both developing and advanced economies, particularly in the European Union (EU).

"Youth unemployment increased by as much as 24.9 percent in the Developed Economies and European Union between 2008 and 2012… On current projections, the youth unemployment rate in the Developed Economies and European Union will not drop below 17 percent before 2016," the report added.

It warned that the EU was at particular risk of the "scarring effects" of youth unemployment among an over-skilled and over-educated young generation forced to take informal and irregular jobs.

"There is a price to be paid for entering the labor market during hard economic times. Much has been learned about "scarring" in terms of future earning power and labor market transition paths. Perhaps the most important scarring is in terms of the current youth generation's distrust in the socio‐economic and political systems," the report added.

"There is serious polarization among EU countries, so in certain countries in south Europe the youth unemployment rate is higher than 50 percent, it's clearly a social emergency," Andor told CNBC in London, adding that the lack of growth policies would stymie the region's recovery.

"If the European Union continues to rely on excessive austerity and the so called internal devaluation of the deficit countries, I don't think we will get out of this hole. You know to get out of the hole, we first need to stop digging and reconsider the macroeconomic policies, which provide a framework for everything else," he said.

A number of euro zone countries have requested and been granted more time to repay bailout loans or reach deficit targets but Andor suggested that Europe needed to set "more realistic deadlines for deficit countries" to help them emerge from recession.

He also added that wealthier northern European countries could do more. "Surplus countries who [are] mostly in the north could also help everybody including themselves by simply spending more, investing more at home and thus putting more demand in the EU economy."

Andor warned that the social cost of monetary union could, eventually, be too high.

"Monetary union is not going to be sustainable if the price of fiscal convergence is such social divergence. If countries have to pay excessively with high unemployment and rising poverty, outward migration of the young generation for delivering on the very strict fiscal rules," he said.

"There's only one way to maintain this convergence of the fiscal rules and discipline, if there is greater solidarity, more support from the countries that benefit most from the single market and the single currency - to those who have been hit by the crisis of the recent years."